Griffin Wellpoint Corp. v. Engelhardt, Inc.

• Citation: 92 Ill.App.3d 252,46 Ill.Dec. 888,414 N.E.2d 941
• Decision Date: 26 December 1980
• Docket Number: No. 79-164,79-164
• Parties: , 46 Ill.Dec. 888 GRIFFIN WELLPOINT CORPORATION, a foreign corporation, Plaintiff, v. ENGELHARDT, INC. et al., a corporation, Defendants. PEABODY PETERSEN COMPANY and Federal Insurance Company, Counterplaintiffs- Appellants, v. VULCAN MATERIALS COMPANY, Counterdefendant-Appellee.
• Court: United States Appellate Court of Illinois

Page 941

414 N.E.2d 941

92 Ill.App.3d 252, 46 Ill.Dec. 888

GRIFFIN WELLPOINT CORPORATION, a foreign corporation, Plaintiff, v. ENGELHARDT, INC. et al., a corporation, Defendants.

PEABODY PETERSEN COMPANY and Federal Insurance Company, Counterplaintiffs- Appellants, v. VULCAN MATERIALS COMPANY, Counterdefendant-Appellee.

No. 79-164.

Appellate Court of Illinois, Second District.

Dec. 26, 1980.

Arvey, Hodes, Costello & Burman, Chicago, Hall, Meyer, Fisher, Holmberg, Snook & May, Waukegan, George L. Siegel, Chicago, Henry D. Fisher, Waukegan, Lawrence C. Rubin, Chicago, and Ned L. Fisher, Waukegan, for plaintiff.

Chadwell, Kayser, Ruggles, McGee & Hastings, Ltd., Paul W. Gabler, Chicago, for defendants.

LINDBERG, Justice.

This action was filed by Griffin Wellpoint Corporation, ("Griffin") seeking a mechanic's lien against public funds under Ill.Rev.Stat.1977, ch. 82, par. 23, and for the entry of a judgment against certain parties including Peabody Petersen Company ("Peabody") and Federal Insurance Company ("Federal") predicated upon a contractor's bond given by Peabody as principal and Federal as surety under Ill.Rev.Stat.1977, ch. 29, pars. 15-16 to the North Shore Sanitary District ("NSSD").

Griffin sought recovery for work done in connection with the construction of a sewage treatment plant known as the North Shore Sanitary District Waukegan Sewage Treatment Plant Additions Division P-3B overflow treatment facilities ("treatment facilities".) Peabody was the general contractor for the construction of the treatment facilities, and the principal on a contractor's bond. Federal was the surety on the contractor's bond. Griffin had allegedly provided the work pursuant to a contract with Engelhardt, Inc. ("Engelhardt"), which was a subcontractor of Peabody. Engelhardt was also named as a party defendant, but had become insolvent before the job had been completed. Engelhardt failed to complete its subcontract. Peabody was required to complete Engelhardt's subcontract and completed construction of the treatment facilities.

After Griffin filed its complaint, Peabody and Federal filed a counterclaim in this action, joining as parties any other persons, firms, or corporations which might have an interest in the funds which were the subject matter of Griffin's complaint, or who might allege that they had a claim on the contractor's bond. Vulcan Materials Company ("Vulcan") was one of approximately thirty parties which were joined in this action. Vulcan had also filed its own action in the Circuit Court of Cook County entitled Vulcan Materials Company v. Peabody Petersen Company, et al., No. 74 CH 1932. That action was transferred from Cook County to Lake County, and consolidated with this cause.

Vulcan filed a counterclaim in this action claiming that it was owed the sum of $267,509.79 for materials such as gravel and concrete mix which it allegedly provided to Engelhardt in connection with construction of the treatment facilities. In Count I of its counterclaim Vulcan claimed a lien in the amount which it alleged was owed to it by Engelhardt against public funds which were held by the North Shore Sanitary District ("NSSD"), and which were due to Peabody under its contract with the NSSD. Vulcan also prayed in Count II for a judgment against Peabody and Federal under the contractor's bond given by Peabody and Federal as required by Ill.Rev.Stat.1977, ch. 29, pars. 15-16. Peabody and Federal filed an answer denying liability on Vulcan's claim.

Subsequently, Vulcan filed a motion for summary judgment on Count II of its counterclaim which sought relief under the contractor's bond. An order was entered granting Vulcan summary judgment in the amount of $267,227.42 plus $60,693.58 in interest against Peabody and Federal. The court found that there was no just reason to delay the enforcement or appeal from that order. A motion for reconsideration was denied. Thereafter, a notice of appeal was filed by Peabody and Federal.

The various documents and attachments to the motions filed in the trial court reveal the following facts.

On or about May 11, 1972, Peabody entered into a general contract with the NSSD for the construction of the Waukegan Sewage Treatment Plant Additions Division P-3B Overflow Treatment Facilities ("treatment facilities"). Peabody was to do all of the work and provide all of the labor, materials, equipment and appurtenances for the construction of the treatment facilities for the sum of $4,579,261.35. On or about that same date, Peabody as principal, and Federal, as surety, gave a contractor's bond to the NSSD. The bond was for the penal sum of $4,579,261.35, and contained obligations relating to performance of the contract and the payment of certain obligations under the contract.

Peabody entered into a subcontract with Engelhardt, which was a general contractor located in Mundelein, Illinois. Under its subcontract, Engelhardt was to perform certain work relative to the construction of the treatment facilities for the sum of $4,134,261.35.

After Peabody and Engelhardt had entered into their subcontract, Engelhardt began its portion of the construction project. Engelhardt hired a variety of subcontractors and materialmen to furnish labor, materials, equipment and other services in connection with the construction of the treatment facilities. One of those materialmen was Vulcan.

As construction went forward, Peabody paid Engelhardt, predicated on monthly pay estimates which it furnished to Peabody. These included all of the work and materials which Engelhardt had incorporated into the project for the period in question, including the labor and materials furnished to Engelhardt by its subcontractors and materialmen including Vulcan.

During construction of the NSSD job, certain change orders were authorized. In addition, the amount of the contract was increased because certain of the items in the contract were on a per unit basis, and the amount of units exceeded the original estimate. As a result of the change orders and increase in the unit items, Engelhardt's subcontract was increased to $4,777,704.02. The total sum of the NSSD contract with Peabody was increased to $5,224,655.40.

In October 1973, Peabody refused to advance additional funds to Engelhardt, apparently because it discovered that Engelhardt had failed to pay its subcontractors and materialmen. Subsequently, Engelhardt was unable to complete the job. Engelhardt sent a notice to its creditors advising that it was insolvent, could not pay its bills, and was out of business. Peabody was required to complete the NSSD job. It has paid a total of about $4,200,000 to Engelhardt. In addition, it paid about the sum of $662,000 to other persons, firms, and corporations to complete Engelhardt's subcontract. Accordingly, the cost to Peabody on the work which Engelhardt was required to perform is about $54,000 in excess of the price for which Engelhardt agreed to do the work under its subcontract. This is exclusive of the claim of Vulcan, which is the subject of this appeal.

The first major area of dispute among the parties to this appeal is Vulcan's financial relationship with the subcontractor, Engelhardt. In the documents and testimony developed through discovery, it appears that Engelhardt was in debt to Vulcan for materials supplied on prior jobs at the time the NSSD construction began. The record shows that Engelhardt was often unable to pay invoices due within thirty days of shipment, and that Vulcan did not insist or demand prompt payment. While construction was continuing on the NSSD job, Engelhardt executed two promissory notes which in part represented amounts past due on invoices for materials supplied on the NSSD job. The first note was executed on March 1, 1973, and was in the face amount of about $307,000; the second, executed on June 1, 1973, was in the face amount of about $33,000. (Two other such notes were executed by Engelhardt to Vulcan in the year 1972, but these notes represented amounts past due on jobs other than the NSSD project, and hence are not relevant here.) There is also evidence in the record that Vulcan took no steps to notify either Peabody or Federal that Engelhardt had executed either of the two notes.

The second major dispute among the parties relates to the method used by Vulcan in applying payments made by Engelhardt to indebtedness on the NSSD job and on other jobs for which it had supplied materials. The complexity of the financial dealings between Engelhardt and Peabody, and in turn, between Engelhardt and Vulcan, prevents a comprehensive recitation of the number and amount of payments among the parties for the calendar years 1972-1973. However, the following salient facts may be briefly noted:

During the period from July, 1972 to December, 1973 materials having a total value of about $385,000 were sold by Vulcan to Engelhardt for the NSSD project and were to be delivered to the job site.

Both prior to and during the period when Vulcan was selling materials to Engelhardt for the NSSD job, Vulcan was also selling materials to Engelhardt for other jobs, some of which were public works projects.

After Vulcan had first sold materials for the NSSD project, the total amount of all payments made by Engelhardt to Vulcan was $332,000. The total amount of payments made by Peabody to Engelhardt in connection with the project, which aggregated about $4,200,000 were deposited in a single checking account during the period from July, 1972, to October, 1973. During this period, deposits and withdrawals in this account from all sources aggregated more than $10,000,000.

On the basis of a first-in, first-out tracing of funds through Engelhardt's checking account, the portion of the $332,000 paid by Engelhardt to Vulcan which was derived from the payments received by Engelhardt on the NSSD project amounted to $77,000.

It is also undisputed that Vulcan applied payments received by Engelhardt according...